German Hedge Fund Scandal Over Euros 600m

by Carla Johnson, Investors Offshore.com

18 March 2005

Up to 30,000 investors may be at risk in the developing scandal at Phoenix Kapitaldienst GmbH, a German fund of hedge funds firm, where assets of up to Euros 600m may have gone missing.

German TV broadcaster NTV alleges that Phoenix mathematician Michael Milde may have misrepresented financial trading, while other commentators are alleging that Pheonix ran a pyramid business.

Last Thursday, Frankfurt-based Phoenix, which has run the alternative investment Phoenix Managed Account since 1992, was instructed by German regulator BaFin to stop trading. New management at the firm is said to have discovered what BaFin calls “irregularities” concerning an account with a London broker. BaFin said: “There is a danger that a three-figure million damage developed for the investors.” The Frankfurt am Main district court has opened a provisional insolvency procedure over Phoenix’s assets, at BaFin’s request.

Investors are being represented by Tuebingen-based law firm Steinhübel & von Buttlar, which specialises in bank, stock exchange and management law. It is not clear whether institutional investors are among the 30,000 who had invested money with Phoenix Kapitaldienst.

Major hedge-fund operator Man Group said that BaFin is probing the accounts of Phoenix, a client of its London brokerage arm, after discrepancies were found. The hedge fund added: "We have undertaken a detailed review of our records and are satisfied there are no irregularities of any kind at any Man Group company. The Man Group has incurred no loss, has no financial exposure to Phoenix, and all Man client and proprietary funds are fully accounted for.”

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